Malaysia and Singapore Travel: Not Working Together

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causewaySingapore recently added toll charges to the Causeway, making travel to the region more expensive. Singapore followed suit. According to a member of the Land Transport Authority, Singapore’s policy is to do what Malaysia does. There are some specifics in the new toll (regarding the Eastern Dispersal Link [EDL] and the Malaysian Causeway Customs, Immigration and Quarantine Complex [CIQ]). Economists and businessmen are arguing that these tolls are resulting in a negative impact on Johor investment.

However, according to Tan Sri Shahrir Samad, the Singapore tolls will not have this effect. He believes that investors will find a way around it, like working virtually. In addition, he pointed out that property rentals in Johor were still significantly cheaper than renting in the republic.

But not everyone agrees with this. Nur Jazlan Mohamed – Pulai’s Johor MP – pointed out that Malaysians traveling to Singapore on a daily basis will “get hammered twice.” And, it will impact Johor’s businesses, as according to Boo Cheng Hau, “for an average car, it would cost RM33 the toll charges on both Iskandar and Woodlands CIQ. Even though it is only S$13, which may not be a burden for Singaporeans, it would certainly be a heavy burden for Johorean commuters.”

Thus it might be wise for both governments to figure out a solution together for further development. As far as Hau is concerned, this will include: “abolishment of tolls at the CIQs, speeding up MRT/LRT connections between Singapore and Iskandar Malaysia, and environmental protection of Johor Straits including the Forest City project.”

Asia Investments: The Philippines

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philippinesThere is much potential these days for the Philippines as a hotspot of Asia investments.  It took a while, but since 2004, the region has been back to its pre-1980s status with GDP averaging 5 percent. A year ago, there was a 7.2 percent growth in the country, marking the highest out of the Association of Southeast Asian Nations economies.

The Philippines does need to sort out some economic issues. For example, its high unemployment rate (standing at 16.5 percent for youth) is most concerning. More quality jobs need to be available to prevent the 10 percent of Philippine workers seeking employment in other countries.

There has been an increase in macroeconomic stability in the region due to Bangko Sentral independence and inflation is now controllable due to lower fiscal deficits and public debt. As well, its economy increased 6.4% on year in the second quarter of 2014, rendering it one of Asia’s fastest-growing countries. Over the last four years, the government that has been in power has increased infrastructure public spending. The 10 percent of residents who send money back home are maintaining the strength of the local economy. In addition, there was an increase of 5.3 percent consumption. Elevated exports are also assisting in growth. But there was a drop in public construction spending.

At the end of the day, the Philippines has a lot going for it economically. But for it to really thrive in the long-term, some serious work needs to be done on its capacity to create real jobs at home.

China’s Forex

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Dariuz KowalczykChina’s FOREX reserves have been escalating substantially over the past five years. In 2009, the figure exceeded $2 trillion and by the end of last month, that number nearly doubled! China’s FOREX makes up a a third of all FOREX reserves worldwide. According to Li Keqiang, this figure has become somewhat burdensome for China, forcing its Central Bank to issue home currency for the purchase of FOREX, which can increase inflation.

Given this situation, experts have advised officials to encourage business people to keep hold of foreign currency and put their monies into foreign markets. One possible explanation for such FOREX reserve escalation is the export increase and foreign investments that are coming to China. Since the region has a trade surplus, further FOREX arrives. And, given that China is becoming an increasingly attractive place for FDI, this further stokes the issue.

In a response to these and other related issues, officials widened the freedom of its banks to set foreign-currency deposit rates in Shanghai. With this, interest-rate controls would be facilitated countrywide. According to senior economist at Credit Agricole SA, Dariuz Kowalczyk, “this is a small step in deposit-rate liberalization because forex deposits are a tiny fraction of the total. However, the removal of Forex deposit caps does represent a step towards liberalization of interest rates and will increase hopes for raising the cap on yuan deposits in coming months. This in turn would lead to higher rates throughout the economy.”

In addition, the People’s Bank of China recently began a trial period on removing the ceiling on foreign currency deposit rates for small accounts at first. Later on, should this go well, it will be extended to other accounts, contingent on the current market conditions.

To a certain degree, China needs its FOREX reserves. But for global transactions and to cope with potential risks they are necessary. However, in excess, they result in an “unendurable burden.”

New Investments in Asia

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Asia-investFor the last two-and-a-half decades, the Ontario Teachers’ Pension Plan has been making investments in Asia. Currently, the figure stands at approximately C$12.5 billion. Now, it is set to give more, allocating the funds to private investments. Ron Mock, CEO of OTTP, believes Asia investments are “a critically important part of our portfolio growth in the future. We’re Asian optimists. We see this region as a place that we absolutely have to be involved in. The private area is in a growth mode for us.

But before making the investments in Asia, it is important to proceed with caution. According to Market Realist, Asia is often viewed as “a land of opportunity.” The region features emerging and developing markets which translates into “a lot of hope and promise for investors.” Foreign investors are finding ETFs attractive, in particular the Vanguard Pacific (VPL). There is also the iShares MSCI All Country Asia ex-Japan Index ETF (AAXJ) as a great measuring tool. These are all helpful for those looking into investing in Asia.

Another potential issue for Asia investors is that not every market in the region is in the developing mode. One need just look at Japan as an example. In terms of China, while its economy has been doing well over the last few years, there are some issues attached to its equity markets that have not been performing all that well. So that needs to be considered as well.

When it comes to investments, this news indicates that Asia need not be seen as an entity. Split it up and look more specifically at Singapore, Hong Kong, etc.

Asia Investment Options Today

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asia-investmentsDubai Investments (DI) International is considering expanding into Africa and Asia. It is looking to do this through partnerships across the regions as well as possibly participating in commercial projects throughout the Middle Eastern region. This is in the midst of DI International’s negotiations with potential partners in Libya and Iraq to develop a business park like the Dubai Investments Park (DIP) that already exists.

According to the company’s CEO and Managing Director, Khalid Bin Kalban, establishing the firm was just the “first step” in expansion into the global market. The next step is negotiating with potential entrepreneurial companies throughout a wide range of sectors to “consolidate [its position as an important international player.” This is in conjunction with replicating the successful DIP model.

Within the last five years, exports from DI have escalated more than 129 percent. Thus now the time is ripe for moving forward – globally.

Asia Investments: Pros and Cons

According to Sharat Shroff of Matthews Asia, there are obstacles investors have encountered vis-à-vis Asia investment opportunities. These include: the large Korean conglomerate domination of the market, the very specific – and thus elite – business landscape, etc. In other words, Asia needs to begin expanding its industry diversity. Shroff maintains that this IS happening, but slowly, although the trend is likely to continue. Right now, Thailand is a good place to start given that the Thailand Bangkok SET index doubled from October 2011 to May 2013.

For those looking into S.E Asia, the private equity market is good. 2013 saw its highest level in five years, reaching $2.19bn. In addition, according to Towry head of investment Andrew Wilson, the fact that the sterling is currently so strong means that investors can purchase inexpensive assets in the region at better prices. Still, it should be noted that there are risks within this region, so all factors need to be properly considered.

CVC To Receive Investments from JBIC and Sumitomo Mitsui Trust Bank

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CVC Capital Partners Ltd’s fourth Asian fund is looking forward to significant investments from Japan Bank for International Cooperation and Sumitomo Mitsui Trust Bank. The firm initially hoped to raise around $3 billion, having recently secured $3.3 billion from investors for its latest Asia fund, which began its campaign last year.

JBIC’s investment will be its first in a traditional private equity buyout fund, likely a result of increased interest overseas as home markets struggle. According to a statement from the bank, it will invest up to $50 million in the fund. Sumitomo Mitsui Trust Bank agreed to a similar investment in a separate statement.

CVC, a London-based fund, plans to invest the fund in companies throughout the region, including Malaysia, the Phillippines, Indonesia and China.

“Having JBIC as a partner will raise CVC’s profile in Japan, and potentially help CVC to sell portfolio companies to Japanese investors,” a source said.

CVC’s 2008 Asia fund was $4.12 billion.

Embraer Thrilled with Previous Asian Investment

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Embraer, the Brazilian major airframe maker, has had a presence in Asia for a little over a decade. According to the company, China is now the world’s second largest market for aircraft. Embraer’s Beijing office, as well as a joint venture to build ERJ 145 jets in Harbin, are now showing their true value. The company operates primarily from Singapore, but has managed to expand its presence throughout the entire Pacific Rim.

Embraer CEO Frederico Curado explained that the company’s decision to invest heavily in the region has proven worthwhile. He added that the decision was made with careful planning, and implemented following a specific strategy- splitting the company’s marketing efforts into two regions: China, and the rest of Asia.

“I think it was the right call to separate our focus,” Curado said. “China is a specific market and demands a specific focus… I think the decision was key to our success in China.”

“China is still a planned economy,” he added. “For example, business jets have a major application within the airlines, so take Air China, take Hainan, take China Eastern, they all operate business jets within their infrastructure, so things are kind of tied. I think in China one business helps the other maybe more than in other places… There are new players coming. For example, Minsheng, one of our customers and a large operating lease facility, they belong to a bank. The market is just really growing right now; the major players are establishing themselves now; it’s a perfect moment to be there.”

FansTang Aims to Bridge Gap Between China and Hollywood

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As many investors and entrepreneurs know, Asia is currently teeming with business and investment opportunities. Adam Roseman, an investment banker and businessman with experience in the region, recently launched a new project called FansTang. Based in Shanghai, the “hall of fans” aims to provide American celebrities with connections throughout China. According to Roseman, the FansTang data-driven approach is one-of-a-kind. The company specializes in endorsement deals, PR trips and events, and is also producing a daily segment for Shanghai’s satellite network which focuses on Hollywood.

“There was no People Magazine and no Twitter with a common language,” Adam Roseman explained. As a result, Chinese fans had no way of connecting with their favorite stars. “On the other hand, Hollywood stars have demonstrated a clear interest in China. Our goal is to obtain data, whether it’s for them in negotiating film deals or concert promotions, or linking them with the right ad agency. Given the extreme important of China across all these groups, being able to help build relationships with the fans and to activate marketing campaigns is very valuable.”

Roseman added, “We are a data-driven business, and we keep on top of online views, TV and music downloads and other trends every day. We have a better sense than anyone at any given point in time what’s popular and relevant in this market, and it doesn’t always correlate with what’s already popular in the U.S.”

“The key to monetizing China is to understand local Chinese consumers and provide them with what they want, while creating competitive barriers in an area that local Chinese entrepreneurs cannot easily replicate on their own,” Adam Roseman said in an interview. “We are seeing success in doing this because we are bridging the gap between China and Hollywood, not only for our fans but for celebrities as well.”

Roseman explained that FansTang is best equipped to serve Hollywood stars because it combines a thorough understanding of Western culture with Roseman’s extensive experience working in China.

“Chinese business culture and the culture of Hollywood are two very distinctive, strong cultures,” he said. “To be able to cross that bridge, you have to have both patience and experience.”

Hotel Investments Peak in Asia in 2013

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New research from Jones Lang LaSalle’s Hotels & Hospitality Group has revealed that hotel investment volumes in Asia have increased 145% since last year.

Mike Batchelor, Managing Director of Investment Sales at H&H, Jones Lang LaSalle, said: “Hotel trading performance in Asia has experienced a significant turnaround over the past two years and nowhere more so than in Singapore. This quarter’s landmark transaction of the Grand Park Orchard Hotel and adjoining Knightsbridge retail podium heralded the single largest asset deal in the city’s history. Going forward, we are aware of approximately $1.3 billion in exchanged contracts that will contribute to a very strong pipeline over the remainder of the year.”

“As investor confidence in the region continues to rally, the availability of investment grade hotels is becoming increasingly scarce as, as a result, we are seeing buyers turn their attention towards markets such as Thailand, Seychelles and the Maldives,” he added. “The Maldives is proving a particular hotspot where contracts have just been exchanged on what will be our fourth transaction in the country in as little as two years.”

He continued, “While the market is beginning to feel some restriction from a limited pipeline of hotel listings, the unrelenting strength of demand across both private and institutional investors will ensure that transaction volumes remain healthy. Given the volume of hotel deals that are due to settle before year-end, we are increasing our regional full year total sales projection from $3.5 billion to $5.5.billion, confirming 2013 as the strongest year since 2008.”

Asia’s Quantitative Investing Risk Capital Increases 50%

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Over the past year, hedge funds have increased their allocation to Asian quantitative strategies. Dealers have reported up to 50% increase in risk capital allocation throughout the region as a result of the growing Japanese equity market.

Quantitative investing uses strategies such as statistical arbitrage or high-frequency trading. The technique involves the application of data analysis across a wide range of areas including equities, historic prices, earnings and analyst recommendations.

Anthony Byrne of Deutsche Bank explains that the increase in risk capital in Asia comes primarily from US and European hedge funds.

“We have seen a strong pick-up in the amount of risk allocation to quantitative investing from hedge funds in the long/short format over the last 12 months. More than 50% of risk capital allocated to the region within our prime brokerage is quantitative in some form or another. Of that, over half comes from hedge funds that are household names with in excess of $10 billion in assets under management,” he said.

The head of quantitative strategy at a European bank in Hong Kong added, “When you have more volume, more market activity, dispersion and different types of investor classes you have a second order effect which is positive in relation to the quantitative investor who can look across a vast range of factors and take advantage of where they see pricing differences.”