Fintech - disruptive technology

http://www.thestar.com.my/business/business-news/2016/05/21/fintech-disruptive-technology/

Businesses are embracing it by coming up with their innovations and startups

A BUZZWORD growing in popularity in the financial world today is “fintech”, short for financial technology, which in a nutshell refers to the use of technology to deliver faster and cheaper financial services.

Going by some predications, fintech could take a big chunk of business away from traditional banks as it is being run by smaller more nimble start-ups. But the debate is still out there as to how much that chunk will be. In Malaysia in particular, fintech’s presence is still nascent and small. Fintech transactions totalled a mere US$6.37mil this year compared with a global figure of US$769.3bil, according to Statista, an online statistics provider.

It however predicts that fintech transaction values to grow to US$14.4bil by 2020. A significant number of fintech companies, especially those in the digital payments space, actually work alongside local banks.

Still, fintech is not to be taken lightly. Top bankers themselves are speaking of its imminent threat to their business. Former Barclays CEO Anthony Jenkins referred to it as banking’s “Uber moment” to describe technological advances that could see bank branches close down and people laid off.

Last April, Jamie Dimon the CEO of the US’ largest bank JP Morgan in his letter to shareholders warned that “Silicon Valley is coming.” “There are hundreds of start-ups with a lot of brains and money working on various alternatives to traditional banking,” Dimon wrote.

On the home front, just last month prominent banker Datuk Seri Nazir Razak echoed such views. Speaking at the Star Media Group’s PowerTalk: Business Series held at Menara Star, Nazir opined that fintech companies are disrupting banking.

“Bankers must respond to this Uber moment. People actually dislike banks today, since the global financial crisis. Recent data suggests that in the US, the cost of banking intermediation has not changed for 100 years in real terms. This simply means banks have not gotten more efficient over the years, so its right that banks get attacked by ‘Silicon Valley’, which has identified banking as an industry that is very ‘ripe’ or juicy to disrupt.”

Even the central bank is echoing these views.

In his maiden keynote address at an Islamic finance conference in Kuala Lumpur last week, Malaysia’s newly-appointed Bank Negara governor Datuk Muhammad Ibrahim gave a grim reminder to banks of the threats posed by fintech. In particular, Muhammad quoted from a report by McKinsey that 10% to 40% of banking revenue is possibly at risk by 2025 due to innovations outside banking institutions that are able to offer a significant pricing advantage and that technologically-driven applications had spread to nearly every segment of the financial sector, with the number of fintech start-ups having doubled in the last year. “Fintech is challenging the status quo of the financial industry,” he said.

To be fair, Malaysian banks are quick to point out that while fintech does represent a disruption to business, they are embracing the movement, by coming up with their own fintech innovations or by working with fintech startups.

So what is fintech?

In a nutshell, fintech is an economy of companies using technology to improve efficiencies and effectiveness in the financial services industry. To illustrate the offerings of fintech companies, consider the business model of homegrown start-up MoneyMatch, which is modelled after UK-based TransferWise which began in 2011 and today moves US$10bil a year through its platform.

MoneyMatch has created a platform to match individual buyers and sellers of currencies, with the attraction of both sides enjoying better exchange rates than what banks and even money changers offer. The rate used by the MoneyMatch site is the middle rate of the currency exchange spread. So an individual for example, willing to buy US$100 for his travels will be matched with someone wanting to change his US$100 into ringgit. The parties will be matched on this application and then proceed to make their exchange in an agreed location. MoneyMatch is also entering the area of cross border fund transfers.

“For example, someone in Singapore wishing to transfer money to Malaysia can be matched with someone here wishing to send an equal amount of money across the Causeway. Hence the parties can make the respective transfers to local accounts of their choice after an exchange of information. This means the transfer is done minus any cross-border transfer fees,” explains MoneyMatch co-founder Naysan Munusamy, who had spent many years as a forex trader with a number of banks before venturing out to start MoneyMatch.

Peer lending

One key growth area in fintech is peer to peer or P2P lending, online platforms that match borrowers with lenders, bypassing the traditional financial institutions. The business had even attracted big names such as Goldman Sachs. The most notable name in this space is Lending Club, which had launched its service as far back as 2007 and became the US’ largest technology IPO in 2014, raising around US$1bil.

Lending Club claims that its platform – which enables borrowers to get unsecured loans of US$1,000 to US$35,000 – has now helped originate close to US$16bil in loans.

Locally, last month the Securities Commission (SC) launched a regulatory framework for P2P lending, paving the way for small and medium-sized companies to access this new avenue of debt funding. Under SC’s rules though, individuals are not allowed to raise money on the local P2P platforms. Rather it is meant to only fund projects and businesses and a number of safeguards are in place. For example, those behind the operator of the P2P platform need to pass the “fit and proper” test; the rate of financing cannot be more than 18% (as that would be deemed predatory lending) and that the P2P operator has to disclose information related to the issuer and the risk assessment and credit scoring parameters adopted by the operator. There is no authorized P2P platform in Malaysia yet as parties wishing to run such platforms have to submit their application to the SC soon.

In China, P2P lending has virtually exploded. As a recent report by Citibank highlights, “China is past the tipping point”, with fintech companies having similar number of clients as the major banks. The report notes that China is the largest P2P lender in the world, with transactions topping US$66bil, compared with the US with only US$16.6bil.

Regulating fintech

But there are problems. Some unregulated P2P platforms in China had run scams. Others helped fuel an equity roller-coaster by offering funding for stock investments. This led to the Chinese benchmark index rallying more than 150% in the 12 months to last June before abruptly crashing. The Chinese authorities are now cleaning up the P2P sector.

So what are the risks of fintech regulation in Malaysia? And do companies like MoneyMatch need be regulated and licensed?

In an emailed reply to StarBizWeek, Bank Negara says: “Fintech start-ups that engage in activities under the purview of the central bank must comply with existing laws”. Bank Negara explains that regulated businesses include banking, insurance or takaful, money changing, remittance, operating a payment system or issuing payment instruments.

“A fintech company that engages in any activity that falls within the definition of a regulated business must be properly authorised to do so under the relevant laws.

“As an example, collecting deposits via a fintech platform would require approval from Bank Negara.

“A fintech company that is authorised to conduct a regulated business under the laws that Bank Negara administers will be subject to the oversight of Bank Negara pursuant to those laws.”

What this indicates is that Bank Negara is going to regulate fintechs the same way it does banks. But exactly how, it still isn’t clear.

But the good news is this: Bank Negara says it is engaging with firms in this space (and presumably that includes the likes of MoneyMatch), “to understand and where appropriate facilitate their business and provide guidance on aspects on regulation that would be applicable to them.”

Bank Negara adds that it is in the process of formulating a framework that “encourages innovation without undermining financial stability, the integrity of the financial system or the adequate protection for financial consumers.”

The SC has also been pushing for fintech innovation to develop in Malaysia. Last year, Malaysia became the first country in the region to introduce the regulatory framework for equity crowd funding. (While P2P is about companies raising debt, crowd funding is for entrepreneurs to sell equity to investors.)

The SC has also launched aFINity@SC, a fintech community aimed at industry engagement and more recently launched the P2P financing framework, which is aimed at addressing the funding needs of small businesses.

Chin Wei Min, the SC’s new head of innovation and digital strategy, says: “We think fintech can provide solutions to some of the unserved and underserved needs in the capital market.”

Chin adds: “We are also mindful of the risk, fraud and all the pitfalls. We continue to enhance our engagement model. We want to remain very close to the industry.”

Fintech’s hiccups

Some recent developments in the fintech space, however, point to weaknesses in fintech companies. LendingClub, the poster boy company for P2P lending has seen its shares tumble, wiping out about a third of its market value.

This came as it faces scrutiny after its founder and CEO resigned following an investigation into improper loan sales.

The US Treasury has released a report criticising the P2P lending business, recommending it to be more tightly regulated. Some commentators are liking P2P lending to the early days of the subprime mortgage bubble of 2006-07.

It is more likely though that the experiences of fintech in mature markets like China and the US will serve as good guides as to how this business will grow in this part of the world, with the requisite regulations put in place.

And the jury is still out as to whether traditional banks here will lose significant parts of their businesses to fintech start-ups.

Or as one industry observer puts it, fintech is more likely to usurp the business of the shadow banking market here, as some unserved borrowers now have the option to move away from loan sharks or “Ah Longs” and into the crowd funding or P2P platforms. But after that, banks could be next.

By Risen Jayaseelan, Wong Wei-Shen, and Zunaira Saieed The Star

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The arbitration decision on South China Sea could 'change the world'

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THE ruling on an international arbitration case, brought by the Philippines against China on rival claims to the South China Sea, is expected soon.

With the decision widely predicted to favour the Philippines, China – which has refused to participate in the proceedings – has revved up its efforts to influence public opinion at home and abroad.

State-owned media outlets, such as China Radio International’s WeChat account “Watch Asean”, began posting materials provided by the Chinese Foreign Ministry in late April to prove that China lays historical claim to the territory.

Turning to age-old manuscripts like the Book of Han and Record of Foreign Matters written during the Eastern Han Dynasty (25 AD – 220 AD), China said its people were the first to discover, name and administer va­­rious South China Sea islands and therefore enjoy priority rights to own and use the features.

“History has irrefutably proved that China is the sole owner of the South China Sea islands,” it said.

China also cited foreign publications, such as The China Sea Directory by United Kingdom’s Hydrographic Office in 1868 and a 1933 French magazine Le Monde Colonial Illustré, as evidence that Chinese fishermen did live on the islands.

As for other South-East Asian nations that border the South China Sea, China claimed they did not challenge its sovereignty until rich deposits of oil and natural gas were discovered there in the 20th century.

“Vietnam, the Philippines, Malaysia, etc, then ‘occupied’ parts of Nansha (Spratly Islands) and hence the territorial spat ensued,” said Li Guoqing, research fellow of the Institute of Chinese Borderland Studies of the Chinese Academy of Social Sciences told local and international journalists in Beijing.

The conflicts brewed for decades and heightened over the past two years with China’s massive expansion and construction activities in the area, adding airfields, ports and lighthouses to seven islands and reefs.

Its explanation that these facilities were intended for civilian use was not too convin­cing, especially for the United States, which criticised China for “militarising” the disputed waters.

On the international front, China appeared as an aggressive claimant who insists that historical evidence can substantiate its assertion over the territory.

It uses the “nine-dash line” to demarcate its boundary on maps, covering most of the South China Sea and overlapping the exclusive economic zones (EEZ) of Malaysia, Bru­nei, Vietnam, the Philippines and Indo­nesia.

If China is so confident of its sovereignty over the South China Sea, why is it reluctant to appear before the Permanent Court of Arbitration in The Hague?

China said territorial sovereignty is beyond the purview of the United Nations Convention on the Law of the Sea (UNCLOS).

It added that both countries have agreed in the Declaration on the Conduct of Parties in the South China Sea (DOC) to settle disputes through bilateral channels, which means the Philippines’ arbitration has thus breached its obligation under international law.

But the Philippines has emphasised to the five-person tribunal that it is not asking for a ruling on territorial sovereignty, but to clarify its maritime entitlements in the South China Sea.

The tribunal decided in October last year that it has the authority to consider the Philippines’ submissions, adding that the DOC was only a political agreement, which is not legally binding.

The tribunal will rule on whether China’s “nine-dash line” violates UNCLOS, whether the maritime features claimed by both parties should be characterised as “islands, rocks, low-tide elevations or submerged banks” (to determine the maritime zones they are entitled to), and whether “certain Chinese activities” in the South China Sea have violated UNCLOS.

China is adamant that it would not entertain the decision.

“No matter what verdict the arbitration case will be, it is unlawful and invalid. China will neither accept nor recognise it,” Ouyang Yujing, director-general of the Department of Boundary and Ocean Affairs of the Chinese Foreign Ministry, said in a press conference in early May.

Li said it is foreseeable that the disputes over the South China Sea would continue to exist for a long time after the verdict is delivered.

He downplayed the significance of the arbitration, saying that it has been hyped up to appear as if it could “change the world”.

“While China is the most experienced country in the world in solving boundary disputes (through bilateral negotiations), it is also the least experienced when it comes to dealing with territorial claims through international arbitration, so I think China has made the right decision to stay away from the arbitration,” he said.

As China slammed countries outside of the region, such as the US and Japan, for meddling in the maritime row, it is actively lobbying for international support on its stance.

Chinese Foreign Minister Wang Yi, during his three-nation visit to South-East Asia in April, said that Brunei, Cambodia and Laos reached a consensus with China to, among others, agree that countries can choose their own ways to solve disputes and oppose unilateral attempts to impose an agenda on others.

National news agency Xinhua reported that Fiji supported China’s position in a meeting between their foreign ministers in Beijing last month (although the Fijian government quickly clarified that it did not, according to the Fiji Broadcasting Corporation).

Last week, a Doha Declaration was signed by China and 21 countries of the Arab League to support peaceful settlement of disputes through negotiation.

Chinese Foreign Ministry spokesperson Lu Kang said that Gabon, Mauritania and Venezuela have also voiced their support for China.

“We highly commend these countries and regional organisations for their calling for justice,” he said in a daily press briefing.

Judging from China’s behaviour, it is very likely that it will follow up with another publicity blitz to denounce the tribunal’s verdict, if the latter does indeed rule in favour of the Philippines.

The disputes, meanwhile, will be far from over.

By Tho Xin Yi 
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What the market is trying to tell investors?

Second catalyst: Cranes operate on residential buildings at a construction site in Beijing. China’s economic health is the second major concern that could spark off a crisis for Bursa and the world.

IN stock market language, when the charts point to a “dead cross” formation, it means that there is confirmation of a long-term bear market. This is as opposed to a “golden cross” that points to a bull market.

Based on weekly indicators emitting from Bursa Malaysia, a dead cross is coming to formation. The last time this pattern emerged was in the first quarter of 1997 and a year later, the “dead cross” chart was fully formed. By that time, the entire capital market was in flames.

The ringgit fell against the US dollar, banks were in trouble and the stock market hit a nadir of 261 points on Sept 4, 1998.

Technical indicators are no sure sign of market failure. It could change with sentiments. However, time and again it has been proven that the stock market runs six months ahead of what is to be expected in the real economy.

As for the nation’s economy, there is no denying that growth is slowing down. There are governance issues with regards to the handling of public funds.

However, the fact remains that for all the noise the foreign investors make, the Government did not have to pay a premium when it raised US$1.5bil debts a few weeks ago. This indicates that foreign investors have largely discounted local issues.

Nevertheless, the external headwinds are overwhelming and weigh heavy on the Malaysian economy.

It is already showing with the slew of corporate results streaming in. Companies are not doing well, as indicated by Tan Chong Motor Holdings Bhd chalking up its first loss in 18 years. Property developers that have made a pile from a great run in the last eight years are seeing miserable sales.

Malaysia is expected to see a growth of 4% this year, which is low for a small nation. Nonetheless, we are better off than some of our neighbours.

Everybody is cautious, but nobody is able to point a finger to the catalyst that could cause a severe correction to the stock market. Inevitably, it will stem from the economy – whether domestic or global.

There are several signs that have emerged which need some monitoring.

At the top of the list would be the price of oil that has a close correlation to the ringgit and the economy.

Ironically, when crude oil plunged below US$30 per barrel, the ringgit weakened significantly on the view that Malaysia was an exporter of energy and it impacted the country’s revenue.

However, in recent months, oil prices have recovered to about US$45 per barrel levels but the ringgit is continuing to see volatility. One reason is that the market is not convinced that crude oil will stabilise at current levels.

Conventional economic theory reasons that when oil prices fall, it should strengthen economic activity because the cost of doing business comes down. The International Monetary Fund estimates that for every US$20 drop in price per barrel of crude, the global economy should grow by 0.5%.

However, this is not happening because the major economic superpowers of the world are going through their own problems.

This points to China’s economic health, the second major concern that could spark off a crisis for Bursa and the world.

Nobody can authoritatively put a finger on the state of the debt levels of China, especially those held outside the financial sector. The latest figure being bandied about is that the non-financial sector debt is 279% of gross domestic product, according to data from the Bank of International Settlement.

However, the optimists contend that China’s strong growth supports borrowing. Also, the country is seeing high inflation, which in the longer term will cause debt to erode. In the process of growing the economy, China has adopted an approach to weakening the yuan to export its way out. Every time the yuan weakens, the ringgit falls.

The third indicator is the highly likely scenario of the US raising interest rates in the second half of the year from the current band of between 0.25% and 0.5%. It is a measure which, if materialises, will exert pressure on the ringgit.

The headline numbers show that the US economy is still in the stage of recovery. The unemployment rate in the world’s biggest economy has ticked up slightly to 5% from 4.9% previously based on April numbers, but wage rates are still steady, meaning people are still getting paid well.

People’s earnings are growing at an estimated 2.5% based on latest numbers, which means that inflation will kick in.

At the moment the possibility of the US Federal Reserve raising interest rates will not likely happen in the next month or so but there is a strong possibility may happen by the year-end as inflation starts to tick up. This would cause an outflow of funds from emerging economies such as Malaysia and the ringgit would come under pressure.

The fourth catalyst is also tied to the US. This time, it is the fear of Donald Trump becoming the next president. Trump prefers a strong dollar and has hinted of a haircut for those holding US dollar debt papers.

Although Trump has come out to state that he was misquoted on the US dollar debt paper issue, it has spooked investors holding US$14 trillion of US debt papers.

The markets will also watch with anxiety on how Trump deals with policies of other countries such as China, Japan and the European Union (EU) in weakening their currencies to boost the economy.

As the run-up to the presidential elections takes place in November this year, if it becomes increasingly apparent that Trump will triumph over Hillary Clinton, then emerging markets will be spooked.

And finally, the last possible catalyst to cause a global shock is the possibility of Britain leaving the EU or better known as Brexit. Increasingly, the chances of it happening are remote. Nevertheless, nobody can tell for sure until the referendum on June 23.

All the five economic events will have a bearing on the ringgit. Everything points to the US dollar appreciating in the future, leaving the ringgit in defensive mode.

This is already being reflected in the negative mood of the stock market. If there is less noise in the domestic economy on such matters relating to the handling of public funds to governance, it would help the case for the ringgit.

The market is generally correct in predicting the future. But sometimes, the unexpected can happen – such as China handling its debt problems better than expected or Trump not being a candidate for the Republicans.

Such unexpected incidences can quickly reverse the sentiments of the market and the ringgit.

By M. Shanmugam The alternative view The Star

Go to Market Watch

 http://www.thestar.com.my/business/marketwatch/

BMKLCI

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Where does the money go?

RECENTLY I was offered an easy loan with just 5.8% interest rate after activation of my credit card.

There was no pre-qualified questions asked when the sales personnel approached me through the phone. As I had no intention to get funding, I did not take up the offer.

It is understood that the “attractive” rate was offered to attract potential customers. If there is a delay in repayment eventually, the rate would jump up according to the interest incurred on the credit card outstanding balance, which ranges from 15% to 18% per annum.

When I asked around, I found most of my family members had on at least one if not more occasions being offered an easy loan, credit card balance transfer, personal loan, or other credit facilities via phone calls every month.

This contrasts with what I had heard from friends and peers from the property industry regarding housing loan. There have been complaints about stringent requirements for housing loan application and low approval rate. They have this question in mind – where does the money go?

Their concerns are understandable when I see the home loan approval rates was only hovering around 50% for the past few years. In 2013, the approval rate was at 49.2%, it improved slightly to 52.9% in 2014 but went down to 50.2% in 2015.

According to the group president of the Real Estate and Housing Developers Association (Rehda), Datuk Seri FD Iskandar, rejection rate for affordable housing loan applications was more than 50%, and the strict housing/mortgage lending conditions were denying aspiring owners their first homes.

Based on Rehda’s survey in the second half of 2015, loan rejection was the number one reason for unsold units, and affordable homes top the list.

For example, an individual or family with a combined household income of between RM2,500 and RM10,000 are eligible to apply for PR1MA homes that cost between RM100,000 and RM400,000. However, with loan eligibility based on net income, many with their existing commitments such as car loan or credit card outstanding payment, are not able to secure a loan for an affordable home. This dampens the effort of helping qualified households in owning their first homes.

Looking at the situation, I am puzzled with different treatments given to loan application. At one end, there is an easy access for personal loan and credit card financing. On the other, stringent requirements are imposed on housing loan. It seems like the priority has been given to spending on liability instead of asset.

If we look at it from the business perspective, credit card, personal loan and easy loan offer higher profit margin to the banks with interest rates ranging from 12% to 18%, compared to housing loan interest which is about 4.5% to 5%. This may explain the shift of focus among the banks.

Central bank concerned

Reports show that our household debt stood at an alarming 87.9% of GDP as at end of 2014 – one of the highest in the region. It is comprehensible that Bank Negara is concerned with the situation, and would like to impose responsible lending with housing loan.

However, when we look at the details, residential housing loans accounted for 45.7% of total debt, hire purchase at 16.6%, personal financing stood at 15.7%, non-residential loan was 7.7%, securities at 6.5%, followed by credit cards and other items at 3.9% respectively.

A recent McKinsey Global Institute Report highlighted that in advanced countries, housing loans comprise 74% of total household debt on average. As a country that aspires to be a developed nation by 2020, our 45.7% housing loan component is considered low.

Looking at the above, it is ironic that our authorities and banks are strict on funding a house which is a basic necessity and asset for people, but lenient on car loan, personal loan, credit card and other easy financing with higher interest rate, that tend to encourage the rakyat to overspend on depreciating items.

It is common nowadays to see young adults paying half of their salary for car loan, and people go on extravagant holidays or purchase luxury items which rack up their credit card balance. As such it is not surprising that the number of counselling cases took on by Credit Counselling and Debt Management Agency has also shown a worrying upward trend, with the number of cases leaping by 20,000 from 2013 to 2014. There was an average of about 35,000 counselling cases annually from 2008 to 2014, but that figure rose to approximately 60,000 in 2014.

It is important for the authorities and banks to encourage prudent lending and spending, re-look into high housing loan rejection rate, and consider to tighten lending conditions of other loans, such as personal loan and credit card. These will encourage the rakyat to channel their money into assets instead of liabilities, and improve the financial position of the people and the nation in the future.

By Alan Tong

Datuk Alan Tong has over 50 years of experience in property development. He is the group chairman of Bukit Kiara Properties. For feedback, please email feedback@fiabci-asiapacific.com.



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The alchemy of money

Former Bank of England governor claims that for over two centuries, economists have struggled to provide rigorous theoretical basis for the role of money and have largely failed.

The Bank of England in the City of London.

MONEY makes the world go round, so you would have thought that economists understand what money is all about.

The former governor of the Bank of England, Lord Mervyn King, has just published a book called The End of Alchemy, which made a startling claim that “for over two centuries, economists have struggled to provide rigorous theoretical basis for the role of money, and have largely failed.” This is a serious accusation from a distinguished academic turned central banker.

Alchemy is defined as the ability to create gold out of base metals or the ability to brew the elixir of life. King identifies that the main purpose of financial markets is to help real economy players to cope with “radical uncertainty”. But as we discovered after the global financial crisis, financial risk models widely used by banks narrowly defined risks as statistical probabilities that could be measured. By definition, radical uncertainty is an “unknown unknown” that cannot be measured. It was no wonder that the banks were blind to the blindness of financial models, which conveniently assumed that what cannot be measured does not exist. Ergo, no one but dead economists is to blame for bank failure.

When money was fully backed by gold, money was tied to real goods. But when paper currency was invented, money became a promisory note, first of the state – fiat money, supported by the power to impose taxes to repay that debt, and today, bank-created money, which is backed only by the assets and equity of the bank. The power to create “paper” money is truly alchemy – since promises by either the state or the banks can go on almost forever, until the trust runs out.

Today national money supply comprises roughly one-fifth state money (backed by sovereign debt) and four-fifths bank deposits (backed by bank loans and bank equity). Banks can create money as long as they are willing to lend, and the more they lend to finance bad assets, the more alchemy there is in the system.

A good description of financial alchemy is provided by FT columnist Prof John Kay, whose new book, Other People’s Money, is a masterpiece in the diagnosis of financialisation – how the finance industry traded with itself and (almost) ignored the real world. For example, Kay claimed that British banks’ “lending to firms and individuals in the production of goods and services – which most people would imagine was the principal business of a bank – amounts to about 3% of that total”. How is it possible that “the value of the assets underlying derivative contracts is three times the value of all the physical assets in the world”?

The answer is of course leverage. Finance is a derivative of the real economy, which can be leveraged or multiplied as long as there is someone (sucker?) willing to believe that the derivative has a “sound” relationship with the underlying asset. There are two pitfalls in that alchemy – a sharp decline in leverage and a fall in the value of the underlying asset – which were triggers of the global crash of 2007, as fears of Fed interest rate hikes tightened credit and questions asked about risks in subprime mortgage assets that were the underlying assets of many toxic derivatives.

Unfortunately, as we found to everyone’s costs, the banking system itself became too highly leveraged relative to its obligations, without sufficient equity nor liquidity to absorb market shocks.

The real trouble with financialisation is that central bankers, having not taken away the punch bowl when the party got really heady, cannot attempt anything like even trying to move in that direction without spoiling the whole party. Any attempt to raise interest rates by the Fed would be considered Armageddon by those who have huge vested interests in bubbly asset markets. Instead, central bankers like Mario Draghi has to continue to talk “whatever it takes” to continue the game of financialisation.

King’s recommendation that central banks reverse alchemy by behaving like pawnbrokers for all seasons (having collateral against all lending) can only be implemented after the next and coming crisis. Central bank discipline, like virginity, cannot be replaced once lost. The market will always think that in the end, it will be bailed out by central banks. In the end the market was right – it was bailed out and will be bailed out. In the game of playing chicken with finance, the politicians will always blink.

If we accept that radical uncertainty lies at the heart of finance, then money makes the world go around because it provides the lubricant of trade and investment. Without that lubricant, trade and investment would slow down significantly, but with too much lubricant, the system can rock itself to pieces.

The dilemma of central banks today is also globalisation. In addition to the Fed controlling dollar money supply within the US borders, there are US$9 trillion of dollars created outside the US borders over which the Fed has no control. Money today can be created in the form of Bitcoins, computerised digital units that tech people use to trade value. But Bitcoins ultimately need to be changed into dollars. So as long as someone will accept Bitcoins, digital currency become convertible money.

We got into a monetary crisis in which bad money drove out good. The reason was because the financial sector, in collusion with politics, refused to accept that there were losses in the system, so it printed more money to hide or roll over the losses. Surprise, surprise, there was no inflation, because the real economy, having become bloated with excess capacity financed by excess leverage, had in the short run no effective demand. So inflation at the global level is postponed.

But if climate change disrupts the weather and create food supply shortages, inflation will return, initially in the emerging economies, which cannot print money because they are not reserve currencies. In time, inflation will come back to haunt the reserve currency countries. But not before the emerging markets go into crises of inflation or banking first.

Money is inherently unfair – the rich will always suffer less than the poor.

In medieval times, only those with real money could afford alchemy. If it was true then, it remains true today.

Tan Sri Andrew Sheng writes on global affairs from an Asian perspective.



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British media 'barbarians' need lessons

'Barbarians' in UK media should learn manners from 5,000 years of Chinese history

While the rest of the world is discussing unguarded comments made by Queen Elizabeth II saying that Chinese officials were "very rude" during Xi Jinping's state visit last year, Chinese state media has only seen fit to author a single editorial on the subject.

Chinese-language editorial (see below) published earlier today,  the Global Times said that "barbarians" in the British media had blown the incident out of proportion and they could stand to learn some manners from 5,000 years of Chinese culture, via SCMP:

“The West in modern times has risen to the top and created a brilliant civilization, but their media is full of reckless ‘gossip fiends’ who bare their fangs and brandish their claws and are very narcissistic, retaining the bad manners of ‘barbarians’,” it said in an editorial.

“As they experience constant exposure to the 5,000 years of continuous Eastern civilisation, we believe they will make progress” when it comes to manners, it added in the Chinese-language piece, which was not published in English.

For its part, the Global Times simply shrugged off the Queen's comments: “It is not surprising that there are off the record complaints. Chinese diplomats must have mocked British officials privately."

The Queen mocked Chinese officials in private comments that were made public during a garden party in Buckingham Palace. The 90-year-old monarch spoke candidly with the officer in charge of security during last year's state visit -- which was said to have kicked off the "Golden Era in UK-China relations" -- while a camera rolled nearby, picking up their conversation.

The video and the Queen's remarks have made headlines across the world. However, the official reaction in China has been very muted. When asked by reporters at a regular Q&A session yesterday if that "Golden Era" still continues today, Foreign Ministry spokesperson Lu Kang opted to neither confirm nor deny.

Felicia Sonmez from The Wall Street Journal also asked if China thinks that the video was released on purpose. "I think you should refer your question to those who put the footage on the website," Lu replied, though that question was later deleted from the official transcript of the briefing.

Meanwhile, a report on the Queen's comments carried by BBC World News was blanked out in China.

Last October, both sides declared that the state visit was "very successful." The Queen herself said that it was “a milestone in the unprecedented year of co-operation and friendship between the United Kingdom and China.” Prime Minister David Cameron said that the trip had managed to drum up $58 billion in Chinese investment.

With those economic ties in mind, the Global Times sees the Queen's comments as very minor. “The Sino-UK relationship will not be influenced by this. The Golden Era is based on profound interests,” the editorial said.

Of course, the Queen wasn't the only one to make an epic political gaffe this week. While talking to Her Royal Majesty and the Archbishop of Canterbury at Buckingham Palace, David Cameron boasted about the quality of attendees he has arriving at an anti-corruption summit in London later in the week, seemingly unaware of the cameras that recorded him saying:

"We have got the Nigerians - actually we have got some leaders of some fantastically corrupt countries coming to Britain."

He went on: "Nigeria and Afghanistan - possibly two of the most corrupt countries in the world."

The Global Times editorial took a jab at these twin blunders, writing: "But among the Western countries, Britain is one of those that gets caught with its pants down and exposes itself most often.” It's hard to argue with that assessment, following Cameron's remarks, Nigerian President Muhammadu Buhari urged the UK to return assets stolen by corrupt officials. "I am not going to demand any apology from anybody. What I am demanding is the return of the assets," Buhari said at the anti-graft event.

Many have argued that while Cameron's comments may have just been foolish, the Queen's comments were publicized in order to cause chaos in improving UK-China relations, as an indirect attack against Cameron and Chancellor George Osborne. The Global Times was quick to reject this claim, saying that "if they had deliberately done so, that would have been truly crude and rude."

Meanwhile, others have pointed to Queen Elizabeth's umbrella as the true mastermind behind this whole fiasco, The Daily Telegraph reports:

Sources told The Daily Telegraph that the reason the Queen’s comments were audible on the TV footage was because her clear plastic umbrella, which she uses to allow people to see her while sheltering from the rain, had acted like the cone in a loudspeaker, amplifying her voice towards the microphone.

“If she had been holding an umbrella made of fabric, it wouldn’t have happened,” an insider said.

“But because it’s plastic, it reflects the sound like a satellite dish.” - SCMP

社评：英媒爆炒女王私话，八卦术折服全球

英国女王伊丽莎白二世10日在白金汉宫花园举办下午茶会，与伦敦警察署女警官德奥丝有一段私聊。女王的摄影师把它拍了下来，后来不知怎么着漏了出去，英国媒体一顿爆炒。

　　德奥丝是去年中国领导人对英国国事访问时安保工作的“警方首席指挥官”，视频中她向女王抱怨中方与她打交道的官员“粗鲁”，做得“不合外交礼仪”。女王应和了她。英国媒体对这段视频如获至宝，不仅有些当“头条”报，还分别向英中外交部以及英王室问询态度和反应。

　　英国王室和外交部的回应都是：中国领导人对英国的国事访问获得圆满成功，各方通力密切合作，确保了国事访问的顺利进行。中国外交部也做了类似表态，强调访问的成功，以及双方对两国工作团队的努力给予了高度认同。

西方媒体最喜欢报花边消息，而英国王室和英国政府似乎中招的时候最多，经常被媒体揪住小辫。就在同一天，卡梅伦首相同女王和大主教等的私聊也被拍了视频，卡梅伦当时聊得很嗨，称尼日利亚和阿富汗“可能是世界上最腐败的两个国家”，而尼阿两国领导人12日、也就是今天将参加伦敦举行的国际反腐败会议。

　　国家关系越亲密，官员们打交道越多，彼此“有看不顺眼的时候”应当说很正-常，“自己人”私下抱怨几句也没啥大不了的。中国外交官私下里想必也奚落过英国的官僚们。中国互联网上的评论是公开的，去年女王曾被中国网民比喻成“西太后”，卡梅伦被比喻成“李中堂”，当时编排他们的段子红遍中国网络社区。

　　然而中国外交官们做事严谨，很多西方大国也搞得跟“外交无小事”似的，媒体很难逮住官员们议论他国的“私话”。在这方面英国即使在西方国家中也是最经常“露内裤”和“走光”的之一，跟它有一拼的是美国，白宫最近几届的主人似乎都有“忘记关麦克风”的时候。

　　不可想象英国官方故意把这些视频漏出去，因为相信他们知道一旦故意那样做，才是真正的粗鲁和无礼。那是很不文明的市侩做法，自尊的英王室大概更会重视那样的底线。

　　然而“整个英国”还是有些嬉皮士，英媒对八卦的迷恋似乎到了要让一切都“腥”起来的程度。看在这个国家对人类近代史贡献颇丰的份上，让我们主动为它做个解释吧：人都会有毛病，伟大的国家也是一样。 　　相信中英关系不会受到此次事件的影响，两国间“黄金时代”是由深厚利益打造的，而在这两个历史悠久的国度里，理性都有着不可撼动的地位。

　　中国已经站在拥有了全球影响因而树大招风的位置上，世界上的秘闻奇事层出不穷，但那些能跟中国沾上边的，就更容易被发现出来，炒成“一件事”。中国人终将会见怪不怪，耳根子也会越磨越硬。

　　西方自近代以来走到了前面，创造了辉煌文明。但那里媒体不管不顾的“八卦狂”们既张牙舞爪，又很自恋，似乎留了些“蛮夷”的不文雅。然而我们同样相信，在与东方五千年文明的不断接触中，他们会进步的。

国际新闻_环球网

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Philippine president-elect Duterte may shift Manila’s foreign policy, have limited room for change on maritime disputes

Illustration: Liu Rui/GT

The polls opened on Monday for general elections, including the race for the president, in the Philippines. As of press time, Rodrigo Duterte, also known as "the Donald Trump of the Philippines" has assumed a big lead with 39 percent of votes, and is believed to have secured his position as the country's next president.

The 71-year-old Duterte has been mayor of Davao City for over 20 years. But his remarks are far more aggressive than those of US presidential candidate Trump. He has claimed that if he is elected, he will eliminate corruption and crime in this nation within several months and execute 100,000 criminals and dump them into Manila Bay. Not long ago, Duterte even vowed to "forget human rights."

Duterte has also left a strong impression that his concept of foreign policy differs greatly to that of President Benigno Aquino III. He opposes the idea of going to war with China, wants direct negotiation with Beijing about the South China Sea, and doesn't believe in solving the conflict through an international tribunal.

The overwhelming support Duterte received over and above the other contenders suggests there is strong dissatisfaction in the country with Aquino's six-year rule. Though the country enjoyed 6 percent annual growth for the past six years, the public failed to benefit from it. The electorate is also fed up with Aquino's lopsided South China Sea strategy - siding completely with Washington which brought no advantage to Manila.

The public cares most about livelihoods and nationalistic slogans cannot feed them. It is reported that the 40 richest families in the Philippines own 76 percent of the country's total assets. The country is afflicted with corruption and hereditary politics, and as punishment, the Aquino-backed candidate is languishing far behind.

It won't be possible for Duterte to turn the domestic Philippine political arena upside down. Being only a mayor of Davao in the past years, he has no power to move the entire nation. He was obviously bragging when asserting he would eliminate corruption in six months. In an era of rising populism, it seems that a "big mouth" can always be popular wherever they are.

But if there is anything that can be changed by Duterte, it will be diplomacy. Many believe that whoever assumes office will adjust the nations' unscrupulous policy toward China. If the new leader wants to manifest his or her difference from the previous president, as well as to make achievements, improving ties with Beijing is the shortest way.

China will not be too naïve to believe that a new president will bring a promising solution to the South China Sea disputes between Beijing and Manila. However, it sounds accurate that Philippine ties with China have already been through an all-time low during Aquino's presidency. Only time will tell how far the new leader, be it Duterte or not, will go toward restoring the bilateral relationship.

Exclusive interview with Foreign Ministry spokesman Lu Kang

Lu Kang: China hopes new gov't in Philippines will work to solve disputes

CCTV Foreign Affairs Reporter Su Yuting spoke with Foreign Ministry spokesman Lu Kang, for more on China's stance towards the Philippine election and the South China Sea Issue.

Duterte may have limited room for change on maritime disputes

Rodrigo Duterte, the hard-liner mayor of Davao City, seemed to be the sure winner of the presidential election in the Philippines Monday. Duterte shares different political views from the outgoing president Benigno Aquino, and how the China-Philippines relationship will develop after the election is worth exploring.

The South China Sea dispute is at the core of the relationship between Beijing and Manila, yet Duterte's comments on the issue are self-contradictory. Although he suggested settling the disputes via direct negotiations with China, and proposed the principle of shelving differences and conducting joint development in the South China Sea, Duterte also vowed to ride a jet ski to Huangyan Island and plant the national flag there.

Despite the above statements, Duterte is a more practical politician compared with his predecessor. The new government is expected to see adjustments in its South China Sea policy.

However, the room for adjustments is squeezed by the US and the Aquino administration. To begin with, Washington and Manila have reached a series of cooperative agreements including a 10-year long Enhanced Defense Cooperation Agreement and a five-year long Southeast Asia Maritime Security Initiative. By signing these deals, the White House, on the one hand, wants to draw the Philippines over to its side, and attempts to impose restrictions on the new government's foreign policies on the other.

Recently, the Pentagon, by sending warplanes in the international airspace in the vicinity of Huangyan Island, has actively intervened in the South China Sea disputes. The US is always hyping up the Huangyan Island disputes and stirring up troubles against China. The US military intervention is attempting to influence the foreign policies of the new government.

Duterte's political performances will be limited by the Aquino administration as well. The Aquino government unilaterally initiated the international arbitration in 2013 and has been obstinately pushing forward arbitral proceedings regarding the South China Sea disputes ever since.

"If the tribunal rules that the Reed Bank [Liyue Tan] belongs to the exclusive economic zone of the Philippines, then of course we have the right to proceed," Antonio Carpio, Supreme Court Senior Associate Justice, urged the new government to proceed with the arbitration. The National Task Force for the West Philippine Sea was also created by Aquino to unify national actions on the South China Sea issues.

Before leaving the office, Aquino will still strive to manipulate public opinion and provoke nationalist sentiments against China in every possible means. The Ministry of Foreign Affairs has even introduced a Philippines Diplomatic Handbook for the new government's reference. The Aquino administration is trying every means to exert influence on the new government and force it to accept the final verdict of the arbitration.

As mayor of Davao City, Duterte had limited political influence on the whole nation. Earlier, Aquino called on all presidential candidates to form a united front against Duterte. The hard-line new president is likely to face challenges from traditional elites and Manila. "The moment he [Duterte] tries to declare a revolutionary government, that is also going to be the day he will be removed from office," Senator Antonio Trillanes, a former navy officer known for the failed military uprisings in 2007 and 2003, said earlier.

With his "big mouth," Duterte is seen by many as the "Donald Trump of the Philippines." His victory reflects Philippine citizens' strong dissatisfaction with Aquino's rule. The overall situation in the Philippines has not seen significant improvements in recent years. Politically, corruption is severe. Economically, the interests of the lower-class citizens have been neglected. The nation's infrastructure is in urgent need to improve as well. The Philippines is lagging far behind its Southeast Asian neighbors. It is understandable that the Philippine citizens want a hard-line leader to change the status quo.

China has to be prepared for the negotiations with Duterte after the election. Despite the South China Sea disputes, Beijing and Manila have seen frequent people-to-people exchanges and strong economic ties in recent years. The two states should be prepared for direct communications to settle the disputes, and lead the bilateral relationship to a new level.

By Chen Qinghong Source:Global Times

The author is a research fellow at the Institute of South and Southeast Asian and Oceania Studies under the China Institutes of Contemporary International Relations. opinion@globaltimes.com.cn

US destroyer’s South China Sea show an insipid affair

If the South China Sea eventually becomes the main stage for strategic rivalries between China and the US, it will benefit China more. The whole of Chinese society will be more resolute and it means China would have the chance to solve its peripheral and strategic problems at the same time. But the US, whose acts are prompted by greed, will view the South China Sea as its burden sooner or later.

Chinese legal experts refute Philippine claim in South China Sea

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Experts share insights on property market in Malaysia

  Speakers Chris Tan (left) and Dr Choong Kwai Fatt sharing their thoughts to attendees of StarProperty Prime Investment Forum at Nexus, Bangsar South. - RAYMOND OOI/ The Star

PETALING JAYA: Malaysians should start thinking about home ownership before it becomes out of reach, said a property consultant.

Chur Associates founding managing director Chris Tan said property buyers were living in an era of the best home owner protection where incentives and attractive financing plans were provided to genuine home buyers.

“Firstly, one must understand one’s risk profile, metaphorically by setting your investment style either as a hare or tortoise’s pace, as well as any other method that falls in between,” he added.

Tan shared his insights on Malaysia’s agenda of “Housing the Nation” during the StarProperty. my’s Prime Investment Forum 2016 held on Sunday.

Over 400 registrants attended the forum, sponsored by Mah Sing Group Bhd, at Oak Room, Nexus, Bangsar South.

Tan pointed out that “property investment is low-risk and is one of the most important portfolios, even for richer and successful nation groups, as property investment is tangible and is constitutionally guaranteed.”

For first time home buyers, Tan advised that it would be best for each individual to own their very own home, only if they can afford it.

Tan added that property investment was one of the methods to overcome inflation due to property valuation.

Dr Choong: ‘In order to purchase a property, one should first select a developer that has a good track record.’ Advocate and solicitor, tax and GST consultant Dr Choong Kwai Fatt said: “In order to purchase a property, one should first select a developer that has a good track record.

“This is the first assurance of a successful property investment.”

He added that now is the best time to buy a property.

“If the currency drops in value in future, it will be harder to purchase properties.

“Therefore, while the Malaysian currency still holds good value, it is best to invest right away.”

Meanwhile, Mah Sing Group sales and marketing director James A. Bruyns said the company has a range of properties in the northern region and scattered areas in Kuala Lumpur.

In fact, the forum has brought together all Mah Sing’s astounding offerings to property investors, he added.

Among the leading developments presented at the Prime Investment Forum include Ferringhi Residence and SouthBay City in Penang as well as the central region developments, Cerrado residential suites from Southville City in Bangi and Lakeville Residences in Taman Wahyu, Kuala Lumpur.

Bruyns concluded that there wasn’t a good or bad time to invest and if one has the means to invest, they should go ahead and invest.

He said: “Investing in property is a good way to build up the market sentiment especially when people are still investing, where there are good take-up rates as well as good property products.”

By Viknesh Ashley Clarence The Star

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